Victor/Victoria
Back in 1982, when this sort of thing was still considered unusual, Julie Andrews played a woman pretending to be a man in drag in the movie Victor/Victoria. So, the movie’s primary tension was that she was her real gender on stage, but she had to fake being a man in “real” life. I really don’t have any (mortgage or legal related) takes on that irony other than the wordplay of “forbearance/foreclosure” reminds me of Victor/Victoria. Two things that sound and are similar but are also quite different. That said, can anyone explain why the “fore” in foreclosure is spelled with an “e” but there’s no similar “e” in forbearance?
Forbearance exits/foreclosure avoidance
In 2020-21, CFPB, HUD, FHFA and other regulators expended a lot of brain cells and time in creating rules to ensure an orderly and fair[1]process would apply to forbearance exits, with the goals being to keep people (i) safe from the COVID-19 virus[2]and (ii) from losing their homes[3]. CFPB, in particular, was laser-focused on preventing a repeat of the foreclosure crisis we had in 2008-2012 when the country had almost 5% of all loans in foreclosure for years. A disproportionate amount of those foreclosures fell on minority homeowners. So, it is unsurprising that CFPB first fought to formally foreclose foreclosures[4]in its original proposed COVID-19 Emergency Servicing Rule. In the final rule, however, CFPB opted for detailed loss mitigation option waterfalls and waiting periods to ensure consumers would be given every opportunity to avoid foreclosure. CFPB also made numerous ominous[5]statements[6]telling mortgage servicers they would enforce the rules closely and that fair lending/servicing concerns were going to play a critical role in assessing compliance.
Foreclosure is not an option
Yet, with all of the default/loss mitigation options required to be offered to borrowers, some snarky industry observers[7]said that (i) “avoidable foreclosure” is the new term for “foreclosure”, and (ii) the protections for borrowers affected by the pandemic made it seem like many regulators believe foreclosure itself is an unfair and deceptive practice.[8]Well, the MBA delinquency study is out for Q1 2022 and, as it turns out, foreclosures are looking nothing like the 2008-2012 period. Per MBA and its Chief Industry Data Evangelist[9]Marina Walsh,
“The expiration of pandemic-related foreclosure moratoriums led to a modest increase in foreclosure starts from the record lows maintained over the past two years, MBA reported. At 0.19 percent, the foreclosure starts rate remains below the quarterly average of 0.41 percent dating back to 1979 … ‘Given the nation’s limited housing inventory and the variety of home retention and foreclosure alternatives on the table across various loan types, the probability of a significant foreclosure surge is minimal,’ Walsh said. ‘Borrowers have more choices today to either stay in their homes or sell without resorting to a foreclosure.’ ”
Alternatives and choices, indeed. In fact, it would seem the regulators have so beaten down the mortgage servicers to bend over backwards to provide information and options to forbearance borrowers that the loss mitigation SPOCs[10]must feel like Kramer from Seinfeld when he takes a call pretending to be the MoviePhone’s IVR system. Exasperated with repeating the options, Kramer finally says to George, Why don’t you just tell me what movie you’ve selected?”
MBA forbearance data
You may remember that a year ago I tongue-in-cheek penned an extremely short play[11]in Musings Ed. #30 entitled, the Forbearance Exit Dialogues. In that, I imagined what the conversations might be like between a servicing employee and various differently situated consumers upon arriving at the end of forbearance and faced with how to repay the accumulating debt back. That was based on MBA data through May 9, 2021.
Well, based on the MBA’s most recent data[12] a year later, not much has changed on exits as we approach the end of COVID related forbearance. In fact, MBA’s new data shows the following with respect to cumulative forbearance exits[13]:
· 29.2% resulted in a loan deferral/partial claim.
· 18.9% represented borrowers who continued to make their monthly payments during their forbearance period.
· 17.1% represented borrowers who did not make all of their monthly payments and exited forbearance without a loss mitigation plan in place yet.
· 15.4% resulted in a loan modification or trial loan modification.
· 11.4% resulted in reinstatements, in which past-due amounts are paid back when exiting forbearance.
· 6.7% resulted in loans paid off through either a refinance or by selling the home.
· The remaining 1.3% resulted in repayment plans, short sales, deed-in-lieus or other reasons.
According to Walsh and MBA, “The share of loans in forbearance continues to dwindle and is just 5 basis points shy of hitting 1 percent — or 500,000 homeowners — after peaking at 4.3 million borrowers in June 2020. It has been a remarkable recovery for many homeowners in less than two years.”
Foreclosures and value increases
At the beginning of the pandemic, when mortgage loan forbearance and foreclosure moratoria were an overly broad, but effective, short-term response to pandemic induced hardships, many people, myself included, worried what all that might mean for the future of foreclosures and default management when temporary forbearance expires. In fact, I mused about a “giant default, foreclosure and repurchase liability can” being kicked down the road.
What isn’t reflected in the MBA’s numbers yet is whether any forbearance borrowers ended up in foreclosure. Still, when you couple the MBA’s forbearance exit data with the foreclosure start data referenced earlier (showing less than .2% in Q1 2022), it has to be a remarkably low number of forbearance borrowers moving into foreclosure. But is the lack of foreclosures due to regulatory action(s) or is it just a function of the dramatic increases in housing values that have occurred while COVID forbearance was prevalent?
Bullets Dodged
Now, I’ll be the first to admit that I didn’t predict home values would rise over 15% annualy over this period, but did anyone see that coming in March and April 2020 when the pandemic began? The simple truth is that if you can sell a house for vastly more than the mortgage balance it allows borrowers to avoid foreclosure when they are unable to get back on track. All borrowers, regardless of race, have a dramatically better opportunity to keep their equity and gains even if they must sell the house to pay off the debt in 2022 vs. the 2008-2012 period where we had huge value declines. It also means that there are few (if any) losses to send back down to originators in the form of repurchase/indemnification claims. I am grateful those bullets appear to have been dodged.
Sympathy for UWM’s lawyers
Meanwhile, on a totally unrelated note, for those of you interested in how CEO use of social media can make company lawyers up at night[14], I again have to feel for UWM’s lawyers in connection with UWM’s ongoing feud with RocketMortgage[15]. UWM’s outspoken CEO recently posted a LinkedIn dig at RocketMortgage’s workforce reductions in which he wrote that, unlike RocketMortgage, “…, we will never have a layoff because we are a family company focused on what’s best for our people.” That’s a nice thought, but UWM’s lawyers know it can be challenging to be a “focused on what’s best for our people” when you have public shareholders (and their lawyers) and the SEC to account to. I’m also sure UWM’s lawyers hope employment lawyers don’t use that future-oriented layoff statement against UWM in employment litigation, but, hey, at least that in-house team “never” has to worry about a layoff.
[1] In the social justice sense of the word “fair”.
[2] Ironically, public health was the stated goal of the federal eviction ban and many state foreclosure bans. The science behind that public health argument was spectacularly weak.
[3]Forbearance and foreclosure bans made complete macroeconomic sense as a temporary solution in the early months of the pandemic when uncertainty reigned, job losses were huge, and people needed relief. Today, with vaccines, 1.5 jobs for every job seeker, housing supply shortages, and rampant inflation (including real estate values increasing at over 15% annually), that macroeconomic argument has been vaporized.
[4] Do you like my alliteration?
[5]Does “numerous ominous” count as alliteration?
[6]See e.g., CFPB Takes Action to Prevent Avoidable Foreclosures | Consumer Financial Protection Bureau (consumerfinance.gov) and CFPB Compliance Bulletin Warns Mortgage Servicers: Unprepared is Unacceptable | Consumer Financial Protection Bureau (consumerfinance.gov)
[7]Not me, mind you. I like to think of myself as more cynical than snarky.
[8] CFPB apparently thinks you should check the latest CFPB exam manual(s) to find out if this is true. Consumer law expert, Alan Kaplinsky, takes issue with such articulation of UDAAP without rulemaking in a recent note.
[9] I made up that title. Actually, Marina’s title is MBA’s Vice President of Industry Analysis. Congratulations, however, to our mutual friend Jeremy Potter who was actually recently promoted to Chief Evangelist at Stavvy. I look forward to seeing Jeremy at the MBA’s Legal Issues and Regulatory Conference in Miami May 22-25, so I can find out what a Chief Evangelist does and why every company should one.
[10] This is a regulatory term meaning “single point of contact”: a term arising out of the CFPB’s 2012 Servicing Regulation
[11] I think it might more accurately be described as a “skit”.
[12]The MBA data also shows that non-GSE loans have over twice the percentage of loans still in forbearance. When you loss mitigate a (pre-Dodd Frank) stated income loan, are you obligated/allowed to ask for income/employment data? Asking for a friend.
[13]Through March 31, 2022.
[14] I can’t even imagine what it is like to be Elon Musk’s attorney.
[15] Like last Saturday’s Kentucky Derby, I don’t have a horse in that race, but it can still be fun to watch.